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Help needed in re-doing Roth-IRA Portfolio

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mitul
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Help needed in re-doing Roth-IRA Portfolio  Reply with quote  

I am thinking about re-hauling my retirement portfolio based on study I have done. My study concentrated around low expense ratio ETF investments which are based on major indexes. I have narrow down to the investment that I want to do. I have Charles Schwab account and luckily I have found Charles Schwab ETF which are lowest in expense ratio compare to other similar, plus I can get it commission free. But, I have some questions regarding dividend. None of my selected ETF pays divided while other competitors do. So, I do not know what it will hurt me by ignoring some big divided. I'll run down my selection here so you guys can provide me some help in my research.

This first one is really big
Index: Barclays Capital U.S. Aggregate Bond Index
Charles Schwab ETF: SCHZ
Other ETF (%Yield from Yahoo!): AGG (3.54%), BND (3.51%), LAG (3.16%)

Index: FTSE All Emerging Index OR MSCI Emerging Markets Index
Charles Schwab ETF: SCHE
Other ETF (%Yield from Yahoo!): EEM (1.33%), VWO (1.20%)

Index: Russell 2000 Index
Charles Schwab ETF: SCHA (I know this is Dow Jones Small-Cap but it gives me same return)
Other ETF (%Yield from Yahoo!): IWM (1.17%)

Index: Russell 2000 Value Index
Charles Schwab ETF: SLYV (Again this is S&P SmallCap 600 Value Index but gives me same return)
Other ETF (%Yield from Yahoo!): IWN (1.70%)

I want to buy Charles Schwab ETF but not if it will hurt me in long run. I would rather pay commission and get some more in my retirement then saving pennies right now. The main confusion is I do not know how dividend works in Charles Schwab ETF or lack of it.

Plus, this is one more
Index: S&P 500 Value Index
Charles Schwab ETF: SCHV

I am planing to have only these five ETF which will give me 60% US Stock, 20% International Stock, and 20% Bond. We don't have too much money but when you have little money they are more precious.
Post Sun Sep 21, 2014 1:28 am
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blixet
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Every one of these etfs has paid out dividends over the last few years. I don't know where you got the idea that they don't. Just look them up on Morningstar under the distribution tab.

Information is more valuable sold than used – Fischer Black
Post Sun Sep 21, 2014 3:19 am
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oldguy
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Schwab has a Total Market Index Fund SWTSX that has a very small expense ratio 0.09%. If you wanted to simplify, you could use SWTSX as a way to combine 3 of your ETFs - ie, SP500, Rus2000, RusValue2000. Less paperwork, less rebalancing. And about the same result. The yield is 1.37%, they hold about 2000 stocks, all of the SP500 plus most of the Rus holdings.

Are nearing retirement? Or in the middle of your wealth building years? (In which case 20% bonds might be high?)
Post Sun Sep 21, 2014 4:25 am
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mitul
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I am sorry guys for lack of enough research. Schwab ETFs do pay dividend so that worry is no more.

I am at the middle of your wealth building years? The bond will not be in my portfolio for at least 5 more years but I wanted to select one just in case if I want to move money for safe haven.

Just curious, what do you guys think about this portfolio?
Post Sun Sep 21, 2014 6:01 am
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blixet
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Really hard to say.

If someone showed me a toolbox with 5 tools in it and asked me what I thought, how could I say anything meaningful without knowing what they wanted to do with it, how skilled they were at using the tools, do they have other tools in the garage that they aren't showing me and so forth.

Information is more valuable sold than used – Fischer Black
Post Sun Sep 21, 2014 1:59 pm
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oldguy
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quote:
Just curious, what do you guys think about this portfolio?


IMO, you have most of the right pieces. You may be over-thinking it, the Total Market Index gives you diversification of all business sectors, company sizes, big cap, small cap, etc - that generic index typically beats the professional fund managers (after their overhead is taken out).

Your 4 choices (w/o bonds) adds up to about the same allocation as the market index. So your longterm outcome would be expected to be about the same as the Total Market Index.
Post Sun Sep 21, 2014 3:47 pm
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mitul
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Let me give some information about myself.

I am in upper 30's. I make around 90k and contribute (25% = 15% mine + 10% company match) in my 401k. I max out my spouse's RothIRA every year (since last 3 years and some from previous years). I had converted my old 401k to RothIRA in year when I dis not had job.

Both RothIRA has around 15k each.
My 401k has around 150k.
Spouse does not have 401k.

Debt:
Student Loan: 8k remaining, $120/month
Mortgage + Property Tax: Around $1800
No other debt.

How skillful I'm - Let's say I learned the stock market hard way. I started when Citi bank went below $1. I gained lot's of experience since than (the hard way) by doing lots of Option trading. I was way too much green for three years and went fire red for last two years. I have stopped Option trading now. In my 401k I have option to do my own investment and I have never accepted their model portfolio. I checked my return with 3 of my pears who have different model portfolio and I have always (except 2008) beat or matched the model portfolio.

My goal: Like everyone else I want to get to have lots of money (minimum 2 Million) in total combining all retirement accounts by the time I am 67. So I have 30 some years to get there.

Plus, one more thing, Since I still have some time I may replace my bond fund SCHZ with SCHH - a REIT ETF for sometime.


Last edited by mitul on Sun Sep 21, 2014 6:53 pm; edited 1 time in total
Post Sun Sep 21, 2014 5:48 pm
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oldguy
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You have $180,000 and you are adding about $33,000/yr to the 3 funds. If you invest in 11%/yr funds that will grow to over $10M in 30 yrs. About $3.5M in 20 yrs.

If you use 8%/yr funds it will be $5.5M. About $2.3M in 20 yrs.

So - in all cases, it appears that you will over-shoot your $2M goal at age 67 by a substantial margin.

Take a look at market history - check some 20 and 30 yr blocks of time - you will see that the 30 yr blocks tend to converge on 11%/yr w/o much dispersion. The 20-yr blocks, however, have quite a bit of dispersion.

The most recent 30 yrs (ending last month) averaged 11.54%/yr.
The most recent 20 yrs (ending last month) averaged 9.68%/yr.

http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
Post Sun Sep 21, 2014 6:43 pm
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littleroc02us
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Your in such a good position to meet your goal of obtaining 2 million at least for retirement. 180k and annual contributions of 25% @ 8% for 25 years if you invest in say a Total Stock market index fund will be 2.2 million.
As for your diversifications I would break down the number of accounts to 2 to 3 areas of investing, such as a Total Stock Market Index fund, an international index fund and a Small Cap fund. The funny thing is when I first looked at my wife's portfolio whom only makes 38k a year and is 35 now, she had 100k in her Roth IRA, but had 28 different funds. I starting moving them into an Index fund, a money market fund and an international fund. A lot less confusing to keep track of now.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Sep 22, 2014 9:30 pm
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